Professional Documents
Culture Documents
GOVERNMENT OF INDIA
INTRODUCTION
Post Office Savings Bank-included in the Union List vide item No. 39 of Seventh
Schedule
of the Constitution of India.
Various Schemes framed by the Central Government under :
· Government Savings Bank Act, 1873,
· Government Savings Certificates Act, 1959,
· Public Provident Fund Act, 1968.
Two non-statutory schemes- introduced through executive orders.
OBJECTIVE :
Small savings schemes are designed to provide safe & attractive investment options to
the public and at the same time to mobilise resources for development.
OPERATING AGENCIES :
These schemes are operated through about 1.54 Lakh post offices throughout the
country.
Public Provident Fund Scheme is also operated through about 8000 branches of public
sector banks in addition to the post offices.
Deposit Schemes for Retiring Employees are operated through selected branches of
public sector banks only.
PROMOTION :
National Savings Organisation (NSO) is responsible for national level promotion of
these schemes through publicity campaigns and advertisements in audio, video as well as
print media.
Through a large network of over 5 lakh small savings agents working under different
categories viz:
· Standardised Agency System (SAS),
· Mahila Pradhan Kshetriya Bachat Yojana (MPKBY),
· Public Provident Fund Agency Scheme,
· Payroll Savings Groups,
· School Savings Banks (Sanchayikas)
In addition, the Extra Departmental Branch Postmasters (EDBPMs) also help in
mobilising savings, especially in rural and remote / far flung areas.
INSTITUTIONAL INVESTMENT IN SMALL SAVINGS SCHEMES :
These schemes being primarily meant for small urban and rural investors; institutions
are not eligible to invest in major small savings schemes.
Mutual funds can be defined as the money-managing systems that are introduced to professionally invest
money collected from the public. The Asset Management Companies (AMCs) manage different types of
mutual fund schemes. The AMCs are supported by various financial institutions or companies.
Investment in mutual funds in India means pooling money in bonds, short-term money market, financial
institutions, stocks and securities and dishing out returns as dividends. In India, Fund Managers manage the
mutual funds. They are also referred to as portfolio managers. The mutual funds in India are regulated by
the Securities Exchange Board of India.
Mutual funds have different structure and aims, which in turn enable us to classify them into various major
categories. These categories are:
Mutual funds are preferred for their cost-effectiveness and easy investment process. By investing all the
money in a mutual fund, investors can buy stocks or bonds at lower trading charges. This is indeed one of
the main benefits, which is not available otherwise. You don't need to see which stock or bond would be
better to buy. Another advantage is diversification. Diversification stands for diffusing money across various
different categories of investments. There is every possibility that when one investment is down, the other
can be up. In simple terms, this is helpful in reducing risks.
Transparency, flexibility, professional investment management, variety and liquidity are some of the other
benefits of the mutual funds, which are not found in case of other investments to such an extent.
Volatility in the market activity can be referred to as the risk in the mutual fund investment. The sudden
upward and downward sentiments of the markets and individual issues can be attributed to several key
factors. These factors comprise:
• Inflation
• Interest rate changes
• General economic scenario
The aforementioned factors are the main cause of worry amongst the investors. Most of the investors fear
that the value of the stock they have invested will fall considerably. However, it is here one can notice its
reward angle. It is this element of volatility that can also bring them substantial long-term return in
comparison to a savings account.
Some of the popular firms that deal in mutual funds in India are:
Before knowing about the arguably best mutual funds in India, it is important to know the factors that actually
decide their fate in the market.
In order to get an actual ideal of the best performing mutual funds in the market, one needs to track its
current Net Asset Value or NAV. NAV stands for the latest market value of the holdings of a fund that brings
down the fund's liabilities, which are generally indicated in terms of per share amount. On a daily basis, most
of the funds' NAV is decided. This is determined after the trade closes on certain financial exchanges. The
net asset value of the mutual funds is ascertained at the end of the trading day. An increase in NAV signifies
rise in the holdings of the shareholder. The Fund Firm will then do the transaction on the shares along with
the sales fees. While open-ended net asset value of the mutual funds is issued daily, the close-ended NAV
of the mutual fund is released on a weekly basis.
Life Insurance is the fastest growing sector in India since 2000 as Government allowed Private
players and FDI up to 26%. Life Insurance in India was nationalised by incorporating Life
Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken
over by LIC.
In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a
road map for privatisation of the life insurance sector.
While the committee submitted its report in 1994, it took another six years before the enabling
legislation was passed in the year 2000, legislation amending theInsurance Act of 1938 and
legislating the Insurance Regulatory and Development Authority Act of 2000. The same year that
the newly appointed insurance regulator - Insurance Regulatory and Development
Authority IRDA --started issuing licenses to private life insurers.
List of Life Insurers (as of Sept, 2008)
Apart from Life Insurance Corporation, the public sector life insurer, there are 22 other private
sector life insurers, most of them joint ventures between Indian groups and global insurance
giants.
The main financial services offered by the Department of Posts are the Post Office Savings Bank.
It is the largest and oldest banking service institution in the country. The Department of Posts
operates the Post Office Savings Scheme function on behalf of the Ministry of Finance,
Government of India. Under this scheme, more than 20.50 crores savings account are operated.
These accounts are operated through more than 1,54,000 post offices across the country.
The Post offices provide a number of savings schemes like the Savings Account Schemes,
Recurring Deposit Schemes, Time Deposit Schemes, Public Provident Fund Schemes, Monthly
Income Schemes, National Savings Certificates, Kisan Vikas Patras, and Senior Citizens�
Savings Scheme. A brief of the various schemes is as follows:
Investment
Interest
Scheme Tenure Denominations Salient Features Tax rebate
Rates
and limits
Min: Rs. 50 Max:
No
Post Office 3.5% p.a. On Rs. 1 lakh for Interest is
specific Cheque facility
Savings individual and individual and 2 tax-free u/s
or fix available
Account joint account lakhs for joint 80L
tenure
account
One withdrawal up
to 50% of the
5 years.
5-Year balance is allowed
Can be Min: Rs. 10 per
Post Office 7.5% after one year. Full
renewed month or multiples No tax
Recurring compounded maturity value
for of Rs. 5 Max: No rebate
Deposit quarterly allowed on R.D. 6 &
another 5limit
Account 12 months advance
years
deposits earn
rebate.
6.25% 1 year Long-term accounts
6.50% 2 years could be closed
after 1 year for Investment
7.25% 3 years
discounted interest. qualifies for
Post Office
Min: Rs. 200 and its Accounts could be deduction
Time
multiple thereof closed after 6 u/s 80C.
Deposit
Max: No limit months but before a Interest is
Account 7.50% 5 years year for no interest. tax-free u/s
Interest is 80L
calculated quarterly
but payable yearly.
Account if closed
after 1 year but
before 3 years will
suffer a deduction
Min: Rs. 1500 per
of 2% of the
month or multiples
Post Office deposit. Account if
of it.Max: Rs. 4.5 Interest is
Monthly closed after 3 years
8% p.a. 6 years lakhs for individual tax-free u/s
Income will suffer a
account and Rs. 9 80L
Account deduction of 1% of
lakhs for joint
the deposit. On
account
maturity, bonus of
5% on principal
amount is
admissible
Withdrawal can be
made every year
Investment
Min: Rs. 500 in 1 after the 7th
15-year qualifies for
year Max: Rs. financial year. From
Public 8% p.a. deduction
15 years 70000 in 1 year the 3rd financial
Provident compounded u/s 80C.
tenure Deposits can be year, loan can be
Fund yearly Interest is
made in lump-sum availed against
Account tax-free u/s
or 12 installments PPF. No attachment
80L
under court decree
order.
Kisan 8.4% --- No limits. A single holder No tax
Vikas compounded Investment certificate can be benefits
Patra yearly. Money denominations purchased by an
doubles in 8 available are of Rs. adult. A certificate
years and 7 100, Rs. 500, Rs. can also be
1000, Rs. 5000, Rs.
10,000, in all Post
purchased jointly by
months Offices and Rs.
two adults.
50,000 in all Head
Post Offices.
Investment
Min: Rs. 100. Also as well as
8% p.a. available in the interest
National A single holder
compounded denominations of deemed to
Savings certificate can be
half-yearly but 6 years Rs. 100/-, 500/-, be re-
Certificate purchased by an
payable after 1000/-, 5000 & Rs. invested
(VIII issue) adult.
maturity 10,000/-. Max: no qualifies for
limit deduction
u/s 80C.
Age should be
above 60 years or
55 years above if
retired under
superannuation.
Account if closed
Senior Only 1 deposit Investment
after 1 year will
Citizens� allowed in multiple qualifies for
9% p.a. 5 years suffer a deduction
Savings of Rs. 1000. Max is deduction
of 1.5% interest and
Scheme Rs. 15 lakhs u/s 80C.
after 2 years will
suffer a deduction
of 1% interest. TDS
is made on interest
if it exceeds Rs.
10000 p.a.
A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy
varies according to the current net asset value of the underlying investment assets. It allows
protection and flexibility in investment, which are not present in other types of life insurance such
as whole life policies. The premium paid is used to purchase units in investment assets chosen
by the policyholder.
ULIP came into play in the 1960s and is popular in many countries in the world.
As times progressed the plans were also successfully mapped along with life insurance need
to retirement planning. In today's times, ULIP provides solutions for insurance planning, financial
needs, and many types of financial planning including children’s marriage planning.
In India investments in ULIP are covered under Section 80C of IT Act. However, the concept of
having an investment and insurance by the same instrument was challenged by the market
regulator SEBI which took up the matter to the Supreme Court of India .The Indian government
brought down curtains on the two-month long tussle between the regulators by ruling that Unit-
linked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development
Authority (IRDA).[
A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed
period; say for a minimum period of 15 days to five years and above, thereby earning a higher rate
of interest in return. Investor gets a lump sum (principal + interest) at the maturity of the deposit.
Bank fixed deposits are one of the most common savings scheme open to an average investor.
Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary
from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the
amount deposited, premature withdrawal before maturity period (which involves a loss of interest)
etc. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of
India.
Features
Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India
(RBI) with regard to several policy and operational parameters. The banks are free to offer varying
interests in fixed deposits of different maturities. Interest is compounded once a quarter, leading to
a somewhat higher effective rate.
The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an
unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-.
Before opening a FD account, try to check the rates of interest for different banks for different
periods. It is advisable to keep the amount in five or ten small deposits instead of making one big
deposit. In case of any premature withdrawal of partial amount, then only one or two deposit need
be prematurely encashed. The loss sustained in interest will, thus, be less than if one big deposit
were to be encashed. Check deposit receipts carefully to see that all particulars have been properly
and accurately filled in. The thing to consider before investing in an FD is the rate of interest and
the inflation rate. A high inflation rate can simply chip away your real returns.
Returns
The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the
maturity period (duration) of the FD and the amount invested. Interest rate also varies between
each bank. A Bank FD does not provide regular interest income, but a lump-sum amount on its
maturity. Some banks have facility to pay interest every quarter or every month, but the interest
paid may be at a discounted rate in case of monthly interest. The Interest payable on Fixed Deposit
can also be transferred to Savings Bank or Current Account of the customer. The deposit period can
vary from 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 10 years.
Advantages
Bank deposits are the safest investment after Post office savings because all bank deposits are
insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get a
loans up to75- 90% of the deposit amount from banks against fixed deposit receipts. The interest
charged will be 2% more than the rate of interest earned by the deposit. With effect from A.Y.
1998-99, investment on bank deposits, along with other specified incomes, is exempt from income
tax up to a limit of Rs.12, 000/- under Section 80L. Also, from A.Y. 1993-94, bank deposits are
totally exempt from wealth tax. The 1995 Finance Bill Proposals introduced tax deduction at source
(TDS) on fixed deposits on interest incomes of Rs.5000/- and above per annum.
Recurring Deposit
The Recurring deposit in Bank is meant for someone who want to invest a specific sum of money
on a monthly basis for a fixed rate of return. At the end, you will get the principal sum as well as
the interest earned during that period. The scheme, a systematic way for long term savings, is
one of the best investment option for the low income groups.
Features
The minimum investment of Recurring Deposit varies from bank to bank but usually it begins from
Rs 100/-. There is no upper limit in investing. The rate of interest varies between 7 and 11
percent depending on the maturity period and amount invested. The interest is calculated
quarterly or as specified by the bank. The period of maturity ranging from 6 months to 10 years.
The deposit shall be paid as monthly installments and each subsequent monthly installment shall
be made before the end of the calendar month and shall be equal to the first deposit. In case of
default in payment, a default fee is chargeable for delayed deposit at the rate of Rs. 1.50/- for
every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer
maturities.
Since a recurring deposit offers a fixed rate of return, it cannot guard against inflation if it is more
than the rate of return offered by the bank. Worse, lower the gap between the interest rate on a
recurring deposit and inflation, lower your real rate of return. Premature withdrawal is also
possible but it demands a loss of interest.
Returns
The rate of interest varies between 7 and 11 percent depending on the maturity period and
amount invested. The interest is calculated quarterly or as specified by the bank.
Rs 100 Rs 2626
Rs 500 Rs 13,132
Rs 750 Rs 19,698
Rs 3000 Rs 78,792
Advantages
Some Nationalised banks are giving more facilities to their customer, State Bank of India give
Free Roaming Recurring Deposit facility to their customers. They can transfer their account to
any branch of SBI free. Tax benefit on the interest earned on Recurring Deposit up to Rs 12000
Tax Deductible at source if the interest paid on deposit exceeds Rs 5000/-per customer, per year,
per branch.
How to open an Account
A Recurring Bank Deposit account can be opened at any branch of a bank that offers this facility.
However, some banks insist that you maintain a savings bank account with them to operate a
Recurring Bank Deposit account. The terms and conditions vary from bank to bank. When a
depositor opens a Recurring Bank Deposit account with a bank, a pass-book or an account
statement is issued to him.